Hey I got an investigative type question for you.

 

From time to time I visit trade-alert.com and view a few big block option trades that it detects.

 

Last Friday I noticed this

http://i46.tinypic.com/jhu2ok.png

 

Someone either SOLD/Shorted/SOLD Naked 14496 Cat March 50 Puts at $1.02 because it was hit on the bid side.

 

Now this is a very thinly traded option before Jan21.  On Jan 21 it had 21K volume and on Jan 22 it had 33K volume. 

 

On Friday it showed an Open Interest of 26744. So we need to wait until Monday to check the Open Interest number and see if those 14496 options were actually opened or closed.

 

My question is what do you think this means?

 

Did

 

1) Someone buy the puts on Jan 21 and sell it for $0.10 profit the next day. Profit of $144,960 ? 

 

2) Someone knows that $CAT will go up from Friday and they shorted these puts so they would expire worthless?

 

3) Someone knows that $CAT will go up from Friday and they sold naked these puts so they would expire worthless?

 

Do you use the TICK or TRIN charts in any of your trades?

 

 

Reply:

 

When AAPL goes up the value of the puts decreases. People buy PUTS when they think the stock will go down or they buy it as protection just in case they own the actual stock and the market crashes. So if you bought 100 shares of AAPL at $230 and bought 1 $230 strike put and tomorrow all of APPLE computers blew up and the stock was totally useless then you could sell your useless apple stock to the troubled soul who sold you that PUT and he would have to pay YOU $230 for each share even though the market value of the stock was $0.01/share.

 

Even though at the same strike price, PUTS will always be more expensive than calls.

 

Now each option has a delta ratio which is simply how close it follows the actual price of the stock.

 

If you buy an IN-THE-MONEY put then it usually has a 1.0 delta rating meaning,

 

If AAPL is $230 now and you own a $240 put, and AAPL goes to $220 that put will increase in value by $10.

 

 

If you own an AT-THE-MONEY  or OUT-OF-MONEY put its delta rating varies, it might be 0.5 or 0.25. It's simply a ratio.

 

So if AAPL goes down by $1, and you bought a put with a delta of 0.30 then the value of the put will increase by $0.30.

 

Keep in mind however that options expire so everyday it has a decaying factor. If you own the stock, you own the stock forever,  that's not the way with options.

 

So if you don't know what your doing follow someone on Twitter that does. CopperSTL is one person that deals with options. 

 

Trust me they are very risky. One fellow at work once made $23,000 with some $BIDU options a couple months ago. Then he wanted to make another $30,000 to buy a BMW Z4 and he got greedy and lost the $23,000 with another $10000 and finally his wife took away his trading privileges.

 

Don't let that happen to you.

 

 

 

 

 

 

 

 

 

Got another question.

 

During your first webinar about 2 weeks ago you mentioned that you would talk about the market makers. 

 

I've been doing reading lately about how the currencies trade in ways to primarily stop out many amateur traders. It stated that forex trading was essentially a zero sum game and what the banks and institutions do a lot is move the market a certain direction to stop-out traders.

 

For example if there is a breakout with a large momentumous candle then if you look at the next following candle there is usually a wick to stop-out the breakout traders and finally price makes its way originally.

 

That's why many new traders in forex complain that they get stopped out and then finally the trade goes there way.

 

So I am sure in stocks it works a certain way. I noticed that happens a lot if there is a large gap up.

 

So maybe you can explain the basics of how these market makers operate it would give us all a better understanding of the market.

 

Basically your the only person that can explain this. Most books, ebooks, courses, programs out there claiming to "Make millions trading stocks" are regular basics that one can Google for free.

 

 

 

 

Reply:

 

Yep got it.

 

I will be sure to join the BOWS premium once some of my "dead" stocks (rtk, tsfg, amne, rad) start to move.

 

Right now with Christmas around the corner it's a bit difficult to join and I always try to keep my portfolio on 50% cash for the "red tag" days.

 

 

Hello

 

Was wondering can you post some intraday charts of your day trades with comments.

 

For example if you traded the $FNM or $PIR for a  "one-a-day vitamin" day trade. Can you circle what made you enter this trade at what time and why. And also what made you exit at what time and why.

 

The reason I ask is because I follow your vitamin and daytrades almost everyday looking at moving averages, support, resistance, volume and I can't find any patterns at all.

 

Some of the vitamin morning trades turn out great, some don't move at all, and some go down even. 

 

I know you post comments in your tweets about when you enter however its really hard to see "why" you took that trade in the first place.

 

So a chart with comments will help a lot. 

 

 

 

Reply:

 

I see you follow TheStockTwiter. He has good picks and most of his picks are pennystocks like HESG/OWVI. However you need to understand that he can't be right 100% of the time. I dont know how big your portfolio is but if you made $1500 on OWVI I assumed you must of bought around $3000 worth to begin with. 

 

You need to understand that these pennystocks can be 0.005 one day and next week they can be 0.0005. Roughty 1/10th of its original value. Therefore invest an amount that you are comfortable losing if it goes south. For example, you could of still made $50 with OWVI if you only invested $100. If it went south then the most you would of lost is $100, and you would sleep better at night.

 

And next before you jump in do some research on your own. I bought a small position in OWVI at $0.0025 because it looked like it was close to support. If it fell to around $.0015 ish I would avg down my final position and leave it at that.

 

I was  also debating should I jump in on HESG, however looking at the chart it looked like it could fall a long way before bouncing back up. The setup looked risky to me so I avoided it, even though TheStockTwiter was right and it bounced at $0.0008 to $0.0014. 

  

So do what you were doing before however open up smaller position but more positions. As the old saying goes "Don't put all your eggs in one basket".

 

Reply:

www.freestockcharts.com gives free streaming market data.

 

There are also brokers out there that give free practice accounts that give free access to streaming data.